Low-Income Housing Tax Credit Program

(LIHTC)February 2013

Low-Income Housing Tax Credit Program (LIHTC) An Overview

• A Tax Credit program created under the Tax Reform Actof 1986

• Based on Section 42 of the Internal Revenue Code

• The Federal Government makes credits available to each state for allocation through “housing credit agencies” based upon state populations

• Like other HFA’s, CHFA is designated as Connecticut’s“housing credit agency”

Low-Income Housing Tax Credit Program (LIHTC) An Overview

• The LIHTC program is a Public/Private Partnership

• After receipt of credits, Developers:o work with Syndicatorso sell credits to Investorso receive dollars (equity) during

construction

• Investors receive tax credits over 10 years

Why are Tax Credits so Valuable?

• Tax Credits play a vital role in helping the state to address its low-income rental housing needs by increasing the amount of equity available to developments that otherwise would not have been built, purchased or rehabilitated

• Tax Credits have become the single most important source of capital in the development of affordable housing in the nation

Why are Tax Credits so Valuable?

• Tax Credits provide an incentive for private investment and cover a gap in the financing of affordable rental housing

• Over 2.4 million affordable housing units have been created since the Federal Low-Income Housing Tax Credit program inception

Peachtree, Avon

• Two types of credits are available:

The 4% credit – Allows 4% credits for rehabilitation,new construction and acquisition in conjunction with Tax-Exempt Bondso for cost of developmento for cost of acquisition

The 9% credit – Allows 9% credits for new construction and rehabilitation activitieso for cost of development

• All projects are reviewed to CHFA underwriting guidelines

How the LIHTC Program Works

How the LIHTC Program Works• To be eligible:

the project developer must set aside a specified percentage of units for occupancy by low-income residents

the set-aside requirement remains in place throughout the compliance period which is 15 years

-plus-

An extended use period, which is at least 15 more years, for a minimum period totaling 30 years

Chamberlain Heights, Meriden

How the 4% LIHTC Program Works

• A typical 4% LIHTC proposal would include acquisition, rehabilitation and significant leveraging

• 4% credits are allocated in conjunction with Tax-Exempt Private Activity Bonds

• CHFA generally provides the tax-exempt financing with CHFA Board of Directors approval

How the 4% LIHTC Program Works

• A Tax Credit Property must satisfy the 50% test (50% or more of the development cost must be financed by the tax-exempt bonds)

• CHFA received over $260 million in Tax – Exempt Private Activity Bonds for multifamily housing development use

How the 4% LIHTC Program Works

• A 4% Tax Credit Application is not evaluated on a competitive basis and is submitted to CHFA at any time during the year

• Developers often seek funds from DECD• In the last year, 4% deals needing additional

subsidy apply concurrently in the CHAMP rounds to DECD

William T. Rowe, New Haven

How the 9% LIHTC Program Works

• A typical 9% LIHTC proposal would include new construction, substantial rehabilitation and acquisition

• Connecticut receives approximately $8 million in credits per year, determined by State population

• The credits translate to nearly $75 - $80 million in private equity investment in affordable housing every year

How the 9% LIHTC Program Works

• Applications fall into one of three Classifications:

Public Housing Replaces or Rehabilitates Public Housing

General Other than Public Housing Includes Non-Profit 10% set-aside (Federal Requirement)

Exceptional Priorities Must provide an extraordinary public benefit Apply outside of the round

How the 9% LIHTC Program Works

• CHFA typically holds one 9% funding round per year

• Developers submit applications which are reviewed and competitively rated and ranked based on established scoring criteria

• Developers often seek additional funds from DECD

• Once the competitive rating & ranking occurs, the results are submitted to CHFA’s Board of Directors for approval

Corbin Heights, New Britain

DEVELOPMENTS FUNDED2008 – 20129% 4%

Year $ Amount #Units $ Amount #Units

2008 7.3M 387 4.7M 239

2009 9.7M 828 2.8M 534

2010 4.9M 303 3.1M 185

2011 17.7M 900 3.8M 758

2012 n/a n/a 3.0M 619

TOTAL 39.6M 2,418 17.4M 2,335

DEVELOPMENTS FUNDED2008 – 2012

9%

Year UrbanNon‐Urban Family Elderly

Supportive Projects

Supportive Units

2008 2 5 5 2 2 21

2009 5 4 7 2 6 79

2010 3 1 3 1 3 44

2011 5 6 9 2 7 130

2012 n/a n/a n/a n/a n/a n/a

TOTAL 15 16 24 7 18 274

DEVELOPMENTS FUNDED2008 – 2012

4%

Year UrbanNon‐Urban Family Elderly

Supportive Projects

Supportive Units

2008 2 0 1 1 0 0

2009 2 1 2 1 0 0

2010 3 1 2 2 0 0

2011 5 2 4 3 2 137

2012 4 2 4 2 2 44

TOTAL 16 6 13 9 4 181

What is a QAP?

• The Qualified Allocation Plan (“QAP”) is the document that outlines the criteria and the process for allocating credits

• The QAP is driven by: IRC Section 42 State policy documents, such as the:

o Consolidated Plan for Housing and Community Development (ConPlan)

o Conservation and Development Policies Plan (C & D Policies Plan)

The QAP Process?

• The QAP is updated annually

• Feedback is received from DECD staff, the Governor’s office and now the Interagency Council

• CHFA’s Board of Directors reviews the draft to be published for Public Comment

• CHFAs’ Board of Directors approves the QAP after Public Comment consideration

• The Final QAP is then signed by the Governor

Highlights of the Current QAP

Rental Affordability – 41 Points• Household income targeting preferences • Length of affordability restrictions • Resident services provided at the properties• Supportive housing• Mixed income

Financial Sustainability – 24 Points• Cost effectiveness • Long-term energy saving measures• Readiness to proceed

Points used for the selection of 9% awards reflect priorities

Highlights of the Current QAP

Municipal Commitment & Impacts – 22 Points• Location siting preferences • Municipal commitment• Neighborhood amenities that contribute to vibrant communities• TOD and smart growth

Qualifications and Experience – 13 Points• LIHTC experience of a developer/sponsor and management agent• Developer/sponsor financial resources• Development team’s minority and Connecticut based makeup

Tentative 2013 Calendar 9% LIHTC Application Round

Timeframe Action

February / March Interagency Council; Governors’ Input

April CHFA Board Approval release for Public Comment

May / June Public Comment

July CHFA Board Approval

October  9% Applications submitted

1st Quarter 2014  9% Results